Ride-Sharing Startups Get California Cease-And-Desist Letters

New ride-sharing apps provide a new cheaper way for people to find a ride and get around town. But regulators are concerned about safety and insurance.

The California Public Utilities Commission has issued "cease and desist" letters to ride-sharing startups Lyft, Sidecar and Tickengo. All three companies are continuing to operate while they talk with the CPUC. The CPUC letter informed the companies that they are "charter-party carriers," and as such are subject to CPUC regulation. Under this law, the CPUC regulates airport vans, limousines and the like. The letters were apparently issued in August but were just reported by the San Francisco Chronicle.

Both Lyft and Sidecar enable people to find rides via a mobile app from regular citizens who have a car nearby and a mobile phone. The services are designed to be cheaper than traditional taxis. These apps provide the possibility of replacing car ownership, as I wrote previously, with ride-sharing for many people in big cities. Both are designed on a "donation" basis so that riders give a suggested amount but technically are not hiring a driver because there is no required fee. But regulators apparently don't agree. And taxi and limousine companies, which often enjoy monopolies, are surely looking for ways to block these startups, just as they have opposed startup Uber, which provides licensed town car drivers via a mobile app, in other cities.

Sidecar CEO Sunil Paul says his company is donation based and payment is voluntary, so it should not be covered by this law. He also noted that drivers are riders are checked for safety. "Our view is--we've been talking with the PUC about--is that’s not what we do," Paul said in an interview. "We are a communication platform that allows drivers and passengers to connect up with one another. That's a very different thing from actually providing the transportation service itself."

Meanwhile, competitor Lyft, which is run by startup Zimride, similarly said it does not believe it should be subject to the state law. On its blog, the company wrote: "From the beginning, we carefully designed the service to be in full compliance with the law. Additionally, we’ve gone above and beyond current requirements by offering a first-of-its-kind $1 million excess liability insurance policy to give both drivers and passengers peace of mind."

Tickengo, which also received a CPUC letter, says it is different from Sidecar and Lyft, because it is truly a ride-sharing company meant to fill empty seats in cars that are already going somewhere. (Sidecar and Lyft make this argument as well, but both those services have drivers that typically provide rides for hours at a time while driving around San Francisco.) Geoff Mathieux, cofounder of Tickengo, says its drivers only use the service a few times a year, not several times per day. Tickengo also limits the amount of money drivers can collect per year. "Unlike the others we limit the maximum share-the-expense car pool amount drivers can collect on a yearly basis to AAA's official annual cost of vehicle ownership (currently $8,776 per year)," Mathieux said in an email.